Most Latin currencies are nudging up again on domestic consumption and soaring soft commodity prices, which are tempering the effect of weaker hard commodities. The big unknown is government intervention, which is stymying the rise of both the BRL and CLP.
Latin currencies are starting to feel some giddiness. At the beginning of August, Morgan Stanley revisited its foreign exchange predictions, focusing particularly on Latin America. “We generally expect to see EM currencies rallying over the coming months …. we think that valuations are attractive, while positioning in EM currencies is generally light,” according to James Lord, emerging markets strategist in London at Morgan Stanley.
The Brazilian real is likely to strengthen from current levels as the economy recovers and soft commodity prices continue to rise. “We expect the Brazilian real to strengthen to 1.90 for year-end based on our economics team’s view that China will post a recovery later this year,” says Lord. The real was trading at 2.016 to the US dollar on August 20.
That rise might seem counter-intuitive. After all, oil giant Petrobras is having well-publicized difficulties in its exploration of Brazil’s vast but deep pre-salt discoveries while iron ore prices, Brazil’s key hard commodity, are still under pressure. In August, iron ore fell through what is often cited as a key trading ‘floor’ of $120 per tonne and its decline has even accelerated with prices falling as low as $111 in mid-August.
This is the start of an article that looks at major currencies in the Latin region and predicts their direction. To see the full article, please go to the Profit-Loss website (www.profit-loss.com).